A generation ago, many wondered how many years would pass before American dominance and, by extension, the clout of Western-led financial institutions like the IMF and World Bank faced a serious challenge. So far, no single rival has proved its staying power. For better and for worse, the IMF and World Bank remain core components of international politics and development. And that's what makes collective action among the BRICS-Brazil, Russia, India, China, and South Africa-so intriguing. The BRICS carry considerable weight as models for the next wave of developing countries-particularly following an American-made financial crisis and ongoing turmoil in the Europe.

It's no surprise then that plans announced last month to create a BRICS development bank have generated so much buzz. In particular, the ability of leading emerging market governments to finance big infrastructure construction projects across the developing world has interesting potential implications.

Yet, for many of the same reasons that the BRICS have so far struggled to institutionalize a working partnership in other areas, this bank will take longer to build than its architects think and will never realize the grand ambitions of its most forceful advocates. 

It's no secret that Brazil, Russia, India, China, and South Africa are home to quite different political and economic systems and face different sorts of challenges. Less well understood is the diversity of their interests in creating a bank. Questions of seed money, oversight, purpose, and where the bank might be headquartered are certain to arouse controversy.

But the larger problem is that all the BRICS except China are grappling with sharper-than-expected economic slowdowns-and Brazil, India, South Africa, and Russia are all looking to spend their revenue on infrastructure projects at home to help bolster growth. For the moment, none of them can afford to invest substantial sums to build someone else's roads, bridges, and ports.

These governments face a choice. They can contribute to a BRICS bank funded in equal (modest) parts by each member and lacks the capital to accomplish much. Or they can lend their names to a much-better funded institution that is thoroughly dominated by China.

Yes, Brazil's government is interested in promoting a South-South development strategy, but the Dilma Rousseff administration is now focused mainly on reviving domestic growth following a significant slowdown last year. Its strategy rests in part on using state development bank BNDES to fund ambitious infrastructure projects inside Brazil. If the BRICS bank can be used to finance projects outside Brazil to which BNDES is already committed, it might be useful, but don't expect the Rousseff administration to offer significant new cash commitments toward these projects.

Russia's government, also faced with sluggish growth, will talk up the need for a counterweight to U.S.- and European-dominated institutions, but tepid pledges of support for the bank from Russia's finance minister and the recent tragicomedy in Cyprus make clear that Moscow is not ready to finance its bid for greater international prestige with substantial sums of cash.

Political officials in India, where national elections loom next year, are too preoccupied with a steady stream of domestic troubles to devote much capital to a BRICS development bank, and the government remains deeply ambivalent about its often troubled relations with fast-expanding China. That's in part why India's finance minister has said that the BRICS bank will complement, not challenge, existing international lending institutions.

Then there is South Africa, a country with a growing middle class but chronic high unemployment and an economy the size of China's sixth largest province. The ruling African National Congress sees obvious value in deepening trade and investment relations with China, but its greatest near-term contribution to a BRICS development bank will probably be limited mainly to providing its headquarters a home.

Finally, the bank faces obstacles even within China, the one country than can afford to give it heft. China already has a development bank. It's the most powerful financial institution in the country, one that answers only to the State Council, giving it the status almost of a government ministry. In fact, though the China Development Bank and the China Export-Import Bank may lack the perceived legitimacy of multinational institutions, they don't lack for borrowers. Together, they already lend more to developing countries and companies -- more than $100 billion per year -- than the IMF and World Bank do, extending China's strategic influence throughout Africa and Latin America, in particular.

Why share credit and benefit for these efforts with the other BRICS, especially when the rest have so much less to contribute? And why give others a say in where Chinese funds are invested? 

All five of these governments have an interest in choreographed displays of unity and rhetorical challenges to U.S. power. But like so many other aspects of BRICS cooperation, there is less to this bank than meets the eye.

Willis Sparks is director in Eurasia Group's global macro practice.

By Risa Grais-Targow

Beginning what he says will be his final five-year term as Cuba's president, Raul Castro surprised Cuba observers this week by appointing Miguel Diaz-Canel as first vice-president. At 52, Diaz-Canel is a spring chicken compared to Jose Ramon Machado Ventura, his 82-year old predecessor, and it appears generational change within the leadership might finally be on the agenda. Though Raul Castro, 81, appears in good health, Diaz-Canel would automatically assume the presidency if Castro is forced to step aside before 2018.

What does all this mean for policy? In the near-term, probably not much. Under Raul's leadership, the government has embarked on an incremental path toward economic liberalization while keeping a tight lid on political reform, and that's unlikely to change anytime soon. Diaz-Canel seems to have been selected precisely because he is both a trusted Communist Party loyalist and a proven manager who can balance the delicate process of gradual economic opening with the need to work closely with the still-influential first generation of revolutionaries within Cuba's politburo. Diaz-Canel, a former education minister and an engineer by training, has slowly worked his way through the party ranks. He served two years in the military and reportedly maintains close relations with top brass. He is not particularly charismatic, but, then again, neither is the man he's now in line to replace, who assumed power after older brother Fidel relinquished the reins in 2006. 

The appointment suggests the Castro regime knows it must finally address the issue of succession. Raul has repeatedly called for a "rejuvenation" of Cuba's Communist Party but seems to have struggled to find an appropriate mix of loyalty and reformist credentials, particularly within the generation born after the 1959 revolution.

Still, there is no guarantee that Diaz-Canel will be Cuba's next leader. Other would-be heirs -- most notably Carlos Lage and Felipe Perez Roque -- have been groomed for succession in the past only to fall from grace after demonstrating an excess of personal ambition or clashing with Raul and Fidel. Moreover, though Diaz-Canel has the legitimacy that comes with Raul's backing, his last name is not Castro, and any transition will likely be challenging, particularly given Cuba's deep economic troubles, tensions within the ruling party, and intense pressure from the international community to implement political reforms. 

Still, promoting Diaz-Canel suggests that despite the Castro brothers' seeming immortality, the regime is truly committed to "updating the model" to ensure the system they built continues after Raul and 86-year old Fidel are gone. This also includes continuing economic reforms aimed at slowly and carefully expanding the size of the private sector and reducing state payrolls.

Whether these reforms can keep the regime in power beyond the Castros, however, remains to be seen.  

Risa Grais-Targow is an analyst in Eurasia Group’s Latin America practice. 

Note: Today is the tenth in a series of posts that detail Eurasia Group's Top Risks for 2013.

Jacob Zuma's reelection as ANC president will hasten the decline of South Africa's dominant political party and increase social pressures on the continent's most advanced economy. As elections loom in 2014, critical reforms will fall victim to more populist policies.

On the surface, the ANC's December 2012 national conference at Mangaung struck a surprisingly market-friendly tone: Zuma and his allies defeated his most populist challengers, elected labor-leader-turned-tycoon Cyril Ramaphosa as deputy president, dropped any mention of nationalization from the party's platform, and rammed through an endorsement of the pragmatic National Development Plan (NDP). But beneath the surface, worrying trends have become apparent.

The ruling party's policy of strategic state ownership introduced further policy uncertainty to the mining sector (especially on taxes) and paved the way for a heavier state presence in industries like energy and steel. The government is now more likely to use the threat of new taxes to try to secure cheaper inputs for state-run energy and infrastructure projects.

The NDP will probably provide too little, too late. The plan's most critical reforms -- more flexible labor laws, education reform, and rationalizing local government -- will probably be scuttled by vested interests and weak governance, and its 20-year plan for expanding employment and reducing inequality is too broad and too long term to offer much-needed near-term help. As a result, the plan's more populist elements -- including boosting public-sector employment and social spending -- will be implemented first, further limiting government's ability to find longer-term, structural fixes. Ramaphosa's business experience and negotiating skills will help the NDP's cause. But the plan lost its primary champion when former finance minister Trevor Manuel resigned from the ANC's National Executive Committee.

Zuma's demonstrated ability to survive internal challenges will relieve some of the factional pressures within the ANC leadership: All top six party executives are now Zuma allies, and the president's most vocal challengers were uniformly eliminated from the 80-member NEC. Yet this winner-take-all outcome will also reduce the ANC's so-called broad church of leaders and supporters, further undermining the party's monopoly on political legitimacy among black South Africans and increasing the risk of social unrest.

Despite its electoral dominance -- the ANC won 65.9 percent of ballots cast in 2009 -- growing voter apathy and discontent with the pace of economic change has substantially reduced turnout, meaning the ANC now has the support of just 50 percent of registered voters. Anger over inequality has also driven a rise in violent protests, including frequent demonstrations against poor service delivery and last year's wildcat strikes in mining and farm communities. In general, these actions have been instigated by disgruntled or former ANC-affiliated leaders trying to exert influence from the outside.

These trends will continue in 2013. The new ANC leadership will alienate leaders and constituencies from the same areas where protests and strikes are most common, and government efforts to exert tighter control over provincial resources will exacerbate local tensions. Cutbacks and shutdowns by gold and platinum miners in the first half of 2013 -- as well as the June expiration of wage agreements in the gold and coal sectors -- will almost certainly spark another bout of labor unrest in the mining sector, especially given the weakened position of the government-aligned National Union of Mineworkers and the rise of more militant bodies such as the Association of Mineworkers and Construction Union. Combative stances are also likely from the Congress of South African Trade Unions.

The bottom up pressures will weigh on the ANC in advance of the 2014 elections, as will the scandal-plagued leadership of Zuma himself. Though Ramaphosa's respectability provides the party with badly needed cover, the ANC government will still have to focus on short-term spending and patronage to shore up support. Looser monetary policy is also a real possibility, as is a more aggressive (though still tempered) approach to land reform. Without these steps, continued bouts of social unrest may well shake investor confidence more than unwelcome policies.

Bottom line: Zuma is not Nelson Mandela, and the ANC no longer has enough credibility with poor South Africans to (once again) ask for patience in achieving a better life.

Next, we'll profile our "red herring" risks for 2013.

Note: Today is the seventh in a series of posts that detail Eurasia Group's Top Risks for 2013

East Asia's geopolitical stability will continue to deteriorate this year. Countries such as the Philippines, Vietnam, and Japan will take tougher stances on territorial disputes with China and seek to involve Washington more closely in these issues. But China's new government will find it difficult to compromise and may even take more forceful positions given its need to consolidate internal support and channel growing nationalism. Meanwhile, the US will continue to enhance engagement with Asian partners -- particularly on the economic side -- which will raise skepticism in Beijing.

The most worrying concern during the early part of 2013 will be the Senkaku/Diaoyu islands, claimed by both China and Japan. Tensions surrounding the islands spiked in late 2012 following the Japanese central government's decision to purchase several of them from their private owners. The growing presence of Chinese ships and aircraft in surrounding waters is stoking nationalist sentiments in Japan and increasing the risk of a clash that could quickly escalate and ensnare the world's three biggest economies in an ugly dispute.

In 2013, regional governments will lean toward political considerations more than economic ones. In Japan, a new government led by the Liberal Democratic Party (LDP) Prime Minister Shinzo Abe will become more assertive on foreign policy issues. The LDP was able to capitalize on nationalist sentiments in its campaign, and Abe will carry through with some of his promises in 2013 by establishing a more assertive national security and foreign policy posture. Abe will also bolster the U.S.-Japan security alliance and likely commit Japan to joining the Trans-Pacific Partnership (TPP) negotiations. China will regard such moves as confrontational.

Meanwhile, Beijing's appetite for compromise will be limited. China's political transition will make it more difficult for Beijing to be flexible on foreign policy issues. The country's new leaders will need to consolidate internal support. Moreover, growing middle-class expectations and concern over the state's control of information are expected to encourage a more nationalistic foreign policy. If Beijing faces a foreign policy test, the incoming administration might feel the need to demonstrate its foreign policy mettle and avoid being seen as capitulating to outside interests.

Policies toward Asia from the U.S. will not change much: The rebalancing of its attention toward the region will continue, with more substance on the economic than on the strategic side. In particular Washington's trade negotiators will focus on negotiations for the TPP talks.

The South China Sea will be another hotspot. There has been relatively little tension there in recent months, but that calm is unlikely to continue. Vietnam and the Philippines, in particular, will maintain their aggressive postures toward China. Neither country has an interest in provoking a military conflict, but domestic politics make it difficult to back down without a perceived (even if minor) but unlikely concession from Beijing.

Later this week, we'll profile Risk #8: Iran

Note: Today is the sixth in a series of posts that detail Eurasia Group's Top Risks for 2013

While the immediate crisis has subsided, risk still emanates from Europe in 2013. First, the process of institution-building to address the flaws of the eurozone structure will continue to be halting, especially in light of major elections in Italy and Germany. And second, many eurozone countries face recession or stagnation, which could test the eurozone structure in new ways.

To be clear, as in 2012, the risk of a eurozone break up is minimal, primarily because the European Central Bank has made clear it will do whatever it takes to preserve the euro. But the muddle-through approach presents risks in 2013, just as it did in 2012.

Germany heads to the polls in September. While Chancellor Angela Merkel has gained the strong backing of the German public for her handling of the eurozone crisis, the current government will be loath to contemplate any major new institutional or funding moves that might upset the careful balance she has struck. The most pressing concerns are policies allowing the direct recapitalization of eurozone banks and the building of an ambitious fiscal and banking union.

Italy holds elections on February 24-25 in which anti-austerity and populist parties could win more seats. Such a government would likely struggle to provide political stability, the reform drive could suffer, and financing costs could again rise.

Beyond the political calendar, a number of factors could test the temporary eurozone equilibrium. If France fails to hit budget deficit targets, President Francois Hollande's government will probably have to enact additional spending cuts and some tax hikes. Spanish Prime Minister Mariano Rajoy is unlikely to ask for financial assistance from the eurozone's new permanent bailout fund absent market pressure. But should that pressure arise, Spain would ostensibly have to agree to reform commitments stipulated by the ECB's agreement to purchase the country's bonds in the secondary market. Those commitments are likely to be met with resistance in hard-hit Spain, putting the ECB in a quandary: If Spain refuses to meet the conditions, does the ECB loosen its requirements, potentially encouraging moral hazard in other member states, or does it insist on reforms and potentially withhold assistance that could cause a new conflagration in the eurozone?

Later this week, we'll profile Risk #7: East Asian geopolitics.

Note: Today is the third in a series of posts that detail Eurasia Group's Top Risks for 2013.

The Middle East will enter a new phase in 2013. Arab Spring will give way to Arab Summer, as the region faces a series of increasingly complicated overlapping conflicts. As Americans and Europeans resist deeper involvement, rivalries among Saudi Arabia, Iran, and Turkey, competition for influence between Sunni and Shia, a lack of economic progress, and a resurgence of militant groups will each heighten tensions.

Syria remains the central arena of conflict, as Shia powers -- Iran and Lebanese Hezbollah -- on the one side, and Sunni states -- Turkey, Saudi Arabia and Qatar -- on the other compete for leverage. Jihadists have also entered the fray, and turmoil has spilled across the country's borders into Lebanon, Turkey, Jordan, and Iraq.

Emerging conflicts elsewhere are less obvious. Egypt, Tunisia, and Morocco now have moderate Islamist governments. In Jordan and Kuwait, Islamist opposition groups threaten the governing dominance of secular administrations. But while the words and actions of mainstream parties like Egypt's Muslim Brotherhood and Tunisia's Ennahda make headlines in the West, the more serious risk comes from militant organizations that threaten the ability of new leaders to govern and maintain security.

Fueling this trend is the reality that, across the region, new leaders are trying to consolidate power and build popularity at a time when complicated economic problems demand solutions that will make large numbers of people angry. New governments in Tunisia, Libya, Egypt, and Yemen will last only if they can deliver tangible economic progress for an increasingly frustrated and impatient public.

The risk that a Salafist or jihadist group can exploit these frustrations to seize power in 2013 is low, but groups like al Qaeda in the Islamic Maghreb, al Qaeda in the Arabian Peninsula, al-Shabab, and smaller affiliates continue to attract support and new followers by using resentments against local regimes to foster anger at America and the West. 

But Iraq may become 2013's newest hotspot. Sunni-Shia tensions are growing, and none of Syria's neighbors is more vulnerable to the threats created inside that country by radical Wahhabi clerics, often with Saudi or Qatari support, now fueling the emergence of an increasingly radicalized and militarily experienced Salafist movement. The Kurdish regional government is becoming more aggressive in promoting its energy development agenda at Baghdad's expense, and Sunni-led violence inside the country might well encourage Iraq's Shia-led government to forge closer ties with Tehran, antagonizing the governments of Saudi Arabia and Turkey.

The Obama administration wants to focus on domestic challenges and an ongoing foreign policy shift toward Asia. But regional rivalries are heating up, and Americans and Europeans will only add to the uncertainty by keeping their distance -- in hopes that they don't get burned. 

On Wednesday, we'll profile Risk #4: Washington Politics.  

Vladimir Putin isn't just the second most powerful person in the world. As this FP Slide Show makes clear, the Russian leader is also a race-car driver and a blackbelt in judo.

By Ian Bremmer

A few days ago, I took a quick, informal survey around Eurasia Group on power and global politics. The question: Who are the world's most powerful people? We're defining power as "a measure of an individual's ability to (singlehandedly) bring about change that significantly affects the lives and fortunes of large numbers of people."

Here's what we came up with:

1. Nobody -- In a G-Zero world, everyone is waiting for someone else to shoulder responsibility for the world's toughest and most dangerous challenges. The leaders you'll see named further down this list are preoccupied with local and regional problems and don't have the interest and leverage needed to take on a growing list of transnational problems.

2. Vladimir Putin -- In Russia's personalized system, this is still the person who counts. He isn't as popular as he used to be, and his country has no Soviet-scale clout or influence, but no one on the planet has consolidated more domestic and regional power than Putin.

3. Ben Bernanke -- The world's largest economy is still struggling to find its footing. To help, no one has more levers to pull and buttons to push. The world needs the U.S. economy back on its feet, and Bernanke has more direct influence than anyone else on when and how that happens.

4. Angela Merkel -- For the moment, her commitments are the glue that binds Europe. Merkel's ability to bankroll Europe's emergency funds, win concessions from the governments of cash-strapped peripherals, and maintain solid popularity at home continues to be a remarkable political and policy achievement.

5. Barack Obama -- Even at a time when Washington is focused almost entirely on Washington, the elected leader of the world's most powerful and influential country carries a lot of water. The Obama administration will watch the eurozone from the sidelines and keep commitments in the Middle East to a minimum, but America will continue to broaden and deepen security and commercial relationships in East Asia, and Obama's decisions on how far and how fast to move will be crucial.

6. Mario Draghi -- Europe's backstop. Europe's Central Bank has kept the continent's blood flowing at a crucial moment in its history, and his work is far from done.

7. Xi Jinping -- China's forward progress is the world's most important variable, and Xi Jinping is now the man behind the wheel. Over the next decade, economic and political reforms will be needed to keep China on track, and Xi will make some difficult (and profoundly important) decisions.

8 (tie). Ayatollah Khamenei -- The supreme spiritual and political authority in a country at the heart of a volatile region. Halfway through 2013, Ahmadinejad will give way to a new president, but it is still Khamenei who will decide how the international fight over Iran's nuclear program plays out -- and what the future holds for the Islamic Republic.

8 (tie). Christine Lagarde -- The world's fire marshal. Here is that rare leader whose contribution will be crucial in multiple regions at once. But nowhere will the IMF's work be more important than in keeping Europe on track.

10. King Abdullah Bin Abd al-Aziz -- King of a kingdom with a unique power to move markets. The Saudi monarch is not in the best of health, but the choices he makes in determining who lead the world's hydrocarbon powerhouse into the next generation will help shape the entire global economy for many years to come.

What do you think?

Ian Bremmer is president of Eurasia Group.

By Carsten Nickel

It's a trick not every political leader can pull off: put some 420 billion euro on the European table to protect Europe's weakest economies from default and remain your country's most popular politician. That's what Angela Merkel has managed. Despite having made unpopular concessions to Greece only a few days earlier, delegates of her Christian Democratic Union (CDU) re-elected her as party leader with close to 98 percent support last week. Her public approval ratings remain north of 60 percent, and the trust that German voters have in Merkel's management of the eurozone crisis puts the Chancellor and her party in a strong position ahead of general elections next September.

The reason behind these impressive figures is that Merkel's mix of strong commitment to Europe on the one hand and the push for structural reform in southern Europe on the other exactly reflects the policy preferences of the average German voter. Divert too far from this path to the right, as Merkel's junior coalition partner, the Liberals, attempted in some regional election campaigns last year, and German voters will punish you for your lack of European solidarity. Step too far to the left, like opposition Social Democrats (SPD) have tried with calls for Eurobonds and a debt redemption fund, and voters lose trust in your ability to defend the German taxpayers' interests. In the middle stands Merkel. Her calm, approachable persona and her centrist incrementalism have persuaded German voters that two conflicting goals can be achieved: Save Europe and limit the financial burden on Berlin.

With strategic clarity, Merkel has also drawn the right conclusions from the decline of her former coalition partner, the SPD. Social Democrats still suffer from the disappointment caused by the supply-side reforms introduced under former Chancellor Gerhard Schroeder during the early 2000s. The party's vote share has halved over the last 15 years. In response, Merkel maintains a centrist political position, enabling her to form coalitions with the Liberals, the SPD, or potentially even the Greens. And by offering little opportunity to attack her along the clear-cut lines of left-right politics, Merkel makes sure that traditional SPD voters do not return to the polls anytime soon, denying the party an easy way out of its misery.

Ahead of the 2013 elections, Merkel is therefore unlikely to come under pressure to depart from her current policies. The negative result is that silver-bullet solutions for the eurozone crisis remain unlikely and structural problems such as intra-eurozone imbalances will not be addressed. On the upside, investors in Germany will find it reassuring that the country's high-productivity export model is unlikely to be challenged by calls for demand-side policies. German companies will therefore remain in a strong position to compete for market share in emerging economies across the globe. In Berlin, meanwhile, only one politician wins: Angela Merkel.

By Stephanie Haffner

Since the start of Europe's sovereign debt crisis, tension has risen in the eurozone as a result of the growing economic divide between the group's northern and southern members. The response to the debt crisis was an ugly trade: Northern countries financed southern debts, but in turn imposed harsh austerity and economic reforms. The policies, however, have triggered ongoing protests that could morph into rising resentment from populations in southern EU member states, and extremism.

The belief in Berlin, Helsinki, and other northern European capitals is that austerity will eventually lead to competitiveness, fiscal sustainability, and growth for southern economies as well as the EU as a whole. So far these hopes remain unfulfilled. In fact, continued austerity will spur increasing resentment and a growing divide that could boost the popularity of extremist parties and threaten the European project. This dynamic will be helped along by a looming identity crisis for mainstream political parties in Europe's southern states, where distinctions between the left and right have begun to blur as sovereignty is further undermined and spending cuts drive domestic policies.

Assuming responsibility for southern debt has allowed Europe's northern countries to essentially take control of fiscal policy throughout the EU. This result has eroded the sovereignty of southern European countries, and that process will be further exacerbated by increased policy centralization at the EU level and the move toward fiscal mutualization. As the eurozone's monetary union is strengthened, fiscal instruments (such as Eurobonds/bills) that rely on pooling fiscal risk with greater burden-sharing could end up being exchanged for even more centralized control of economic policy. And new EU legislation, such as the so called two-pack and six-pack, which give national budgetary oversight power to the European Commission, will permanently lock in austerity

Centralized policymaking at the EU level will further exacerbate the political imbalances between the EU's northern and southern members. The northern states' growing role as the policymakers of the EU means that the south will lose the ability to significantly influence EU-level policies. The traditional democratic deficit that exists between the European Parliament and European citizens is thereby transformed into a deficit between southern European citizens and northern European governments, which is arguably a far more critical divide.

But there is a way to avoid such a mess. Economic integration is clearly necessary to resolve the crisis, but politicians are lagging in their efforts to present a long-term vision for Europe's political and economic future as a union. Policymakers should consider shifting their narrative from one that emphasizes oppressive austerity to one that highlights the importance of solidarity and political integration. This goal may require a new treaty to address the lack of political representation and democratic accountability that has come to characterize much of the current response to the crisis. But the failure to address these important issues will not only diminish the voice of southern Europe and its citizens, but could also heighten the risk of a breakdown in the European experiment.

Stephanie Haffner is a researcher with Eurasia Group's Europe practice.

By Roberto Herrera-Lim

It's easy to disparage Vietnam, whose reputation as the poster child for the economic potential of frontier market countries has taken a beating in recent years. Inflation is a persistent threat, growth is slowing, and the country's banks and state-owned enterprises (SOEs) are struggling with a potentially destabilizing level of bad debts. And to top it all off, Vietnam's political leaders are fighting among themselves when the situation calls for firm action. As a result, foreign investors are left scratching their heads and wondering if Vietnam will be able to build the institutions and capabilities needed to move into the ranks of the emerging market nations.  

Vietnam's institutions were not prepared for strong growth. That much is clear from the crisis that has played out over the past few years during which Vietnam's institutions and leaders mismanaged capital inflows, resulting in inflation, bad investment decisions, and near-rogue banks and SOEs. All this occurred on Prime Minister Nguyen Tan Dung's watch, and while he has survived at least two challenges to his leadership, he is weakened and chastened. As a result, consensus decision-making will play a greater role in coming years, while Dung's competitors (including President Truong Tan Sang) reduce his control over policymaking and tighten oversight. The near-term consequence of this dynamic will be a greater likelihood that factional competition will result in uneven policies and conflicting signals.

But don't count Vietnam out of the game yet. Historically, crises have been effective at forcing effective policy choices from the government (such as the 2001 ouster of the party's then general secretary Le Kha Phiu). The current situation is unlikely to result in Dung's exit, but it will spur a serious reexamination of economic policy, especially when it comes to better allocating investment. There is, after all, still a broad consensus among Vietnam's elites that previous reforms should remain in place and that long-term growth and sustained, equitable improvements in the quality of life are needed to ensure the survival of the communist party. The country's economy could also benefit from structural factors that are encouraging investors to consider manufacturing locations other than China.

It may be tempting for manufacturers to look to other countries in Asia, but they should not discount Vietnam's reemergence as a viable investment destination. The country's leaders may be squabbling, but they understand that failure to reform is a larger threat to their primacy than the uncertainty that comes with change.

Roberto Herrera Lim is a Director in Eurasia Group's Asia practice.

By Carroll Colley

Washington is on the verge of completing an improbable trifecta in U.S.-Russian relations. In August, the Obama administration helped guide Russia across the finish line for World Trade Organization membership. Congress is now fast tracking an end to the Jackson-Vanik amendment, a piece of Cold War-era legislation that ties trade policy to human rights, and one that has remained a bone of contention between Moscow and Washington for more than twenty years. Finally, Congress is also about to establish "permanent normalized trade relations" with Russia.

So why are relations on the verge of a potentially serious turn for the worse-and perhaps a reassessment of the "reset" in U.S.-Russian relations? Because this legislation will also include the so-called Magnitsky Act, which publicly rebukes the Kremlin for its poor human rights record.

Sergei Magnitsky, an attorney investigating a corruption case involving tax fraud charges against a UK-based investment firm, announced he had uncovered evidence of collusion among police, organized crime figures, bankers, and the Russian judiciary to push the company out of business. In November 2008, Magnitsky was arrested on corruption charges and held for 11 months without trial. He then died in prison under disputed circumstances. An independent human rights organization, Moscow Helsinki Group, has accused Russian security of torturing him. Magnitsky's death provoked international criticism, but a defiant Russian government continues with a posthumous criminal case against him.

The Magnitsky Act will publicly name and shame Russian officials involved in the case, bar them from receiving US visas, and freeze any assets they hold in the United States. Moscow, as you might imagine, is incensed. The Kremlin sees the bill as evidence of continued anti-Russian sentiment in the United States - -Mitt Romney's campaign comments about Russia were grist for this mill -- and as an intrusion by the U.S. into Russia's domestic affairs. The House looks set to vote on the legislation tomorrow, the third anniversary of Magnitsky's death. The Kremlin promises to respond to the bill's passage by retaliating in kind.

The Magnitsky Act won't damage President Vladimir Putin inside Russia. He remains Russia's dominant political figure, his approval numbers are strong, and few Russians closely followed details of this case. Yet, Moscow remains extremely sensitive to international charges of human rights abuses and corruption of government officials. That leaders of Russia's nascent opposition movement have endorsed the Magnitsky Act aggravates the Kremlin even more.

Moscow has already floated suggestions for a 'black list' of US officials, including those connected with the extradition and trial of convicted arms dealer Viktor Bout or with the prison at Guantanamo Bay. Of more concern is the likelihood of increased pressure on U.S. industry operating in Russia, including, for example, unannounced tax inspections of U.S. companies, delayed or denied licensing or registration procedures, and other bureaucratic complications.

While the Magnitsky Act will punish those involved in the case, it won't do much to improve Russia's human rights regime in the near term. Several incidents since Putin's inauguration in May demonstrate that the state continues to use force to weaken the political opposition. Russian officials recently announced the arrest of political activist Leonid Razvozzhayev on charges of orchestrating a series of riots. Razvozzhayev insists that Russian security officials kidnapped him in Ukraine where he was applying for political asylum, transported him back to Russia, and gained a confession from him by torturing him and threatening his children. Politically connected murders of journalists and human rights activists are no closer to being resolved.

U.S.-Russian relations are now likely to enter a period of strain and recrimination, though pragmatism on both sides will prevent a total collapse. The U.S.-Russian "reset" was a good idea at the time and produced significant results, but there is only so much it can accomplish with so much continuing mistrust on both sides.

Carroll Colley is an analyst in Eurasia Group's Eurasia practice.

By Shaun Levine

Joko Widodo's win in the September 21 Jakarta mayoral election was a momentous step forward for the forces of reform in Indonesia's increasingly stagnant political scene. The luster will soon wear off, however, unless Widodo can translate his victory into fixing the mess he has inherited: failing infrastructure, immovable traffic, water supply issues, and a rebellious regional government, just to name a few. If his time as mayor of the small town of Solo is any indication, Widodo may be up to the challenge. Widodo improved Solo's transportation networks and governance, and reduced the level of corruption endemic in Indonesian politics. However, in order to effect change in the big city of Jakarta, where he is now a de-facto national leader, Widodo will need to roll up the sleeves of his signature checkered shirts.

Widodo's victory could be an important turning point for Indonesia. The early head-first rush into democracy and reformism in 1998 has given way to the patronage politics so common during the days of Suharto. Bureaucratic reforms, the fight against corruption, and attempts to improve governance have largely come to a standstill -- which largely benefits the remnants of Suharto's New Order regime that cling to power and look set to compete with one another in the 2014 presidential election. President Susilo Bambang Yudhoyono's ten-year mandate is coming to an end, with the early promise of reform having been snuffed out by reactionary forces. Even with the backing of more than 60 percent of voters, change and reform have not been easy for Indonesia's first directly elected president.    

Going forward, Indonesian voters will have to choose between elevating new reformers such as Widodo, who himself may become a presidential candidate in 2014, and the crop of leaders from the New Order who see 2014 as a must-win election; most may be too old to compete in 2019.

For these leaders, Widodo's win -- which appeared unlikely at the start of the campaign in the early summer -- should be seen as a wakeup call. The proven tactic of pandering to voters, and in some cases buying their votes, may not be the panacea it was in the past. Neither will efforts to translate a growing sense of confidence in Indonesia's future, based on its international standing and strong economic growth, into economic nationalism. Voters are well aware that the reform movement has largely stalled, and that current leaders want to chip away at democracy so that regional governors like Widodo are appointed and not elected.

But the real impetus is on Widodo and his like-minded counterparts, who have overcome the hurdle of reaching office but will now face the bureaucratic challenges, and temptations, of the reformers that came before them. Promises made on the campaign trail mean nothing when gridlock and animosity seek to undermine reform; compromise is a hallmark of democracy, but not when it benefits the few to the disadvantage of the many.

Against all odds, Widodo was able to show that honesty and a proven track record of reform could overcome overwhelming challenges in campaign financing and political party support. The win also demonstrates that Indonesian politics, which is mired in patronage and money, doesn't have to remain so. This is a democracy that will have its fits and starts, but will more than likely rise up to become a leader in the global community commensurate with its population and wealth.

The presidential election in 2014 is likely to be the last for the Suharto-era leaders, many of whom have witnessed Widodo's victory with envy and some of whom have even benefited from supporting his campaign. The chances of a dark-horse candidate such as Widodo winning in 2014 are still slim. But voters' choice in the Jakarta mayoral election has moved Indonesia a step closer to realizing its much-heralded democratic and economic potential.

Shaun Levine is an analyst in Eurasia Group's Asia practice.

By Crispin Hawes

The death of Saudi Arabia's Crown Prince Nayef bin Abd al-Aziz, though unsurprising, highlights the risk of policy stagnation, an issue of some significance for the Kingdom given its domestic challenges.

As expected Nayef's full brother and appointed successor, Minister of Defense and Aviation Salman bin Abd al-Aziz, has been anointed as Crown Prince. But the current generation of princes-the sons of the kingdom's founder, Abd al-Aziz Ibn Saud-is facing the end of its period in power, which has lasted since their father's death in 1952. There are a few potential candidates to succeed Salman, but the most obvious choices are the Deputy Interior Minister Ahmed (a full brother of Salman and Nayef), Muqrin, a longtime ally of King Abdullah and the General Director of the Saudi Intelligence Agency, and Sattam, Governor of Riyadh.

In broader policy terms, the government will delay any potentially controversial legislation or regulatory reforms. Moreover, there are unlikely to be any significant external or internal policy changes in the coming months. The Saudi regime will want to consolidate power and send a strong message (to both supporters and enemies) that stability will be maintained.

The longer-term danger is that more frequent changes to the succession driven by the age of the current princes will make policy stagnation more likely, creating significant political and economic risk. The Saudi Arabian economy faces considerable challenges and social discontent over economic issues, such as growing unemployment. The current response relies on spending to drive growth and legislative changes aimed at forcing employers to hire more Saudi nationals. These policies are unlikely to address the Saudi economy's significant issues. And as age claims more of the princes in coming years, the likelihood of successive policy freezes makes the adoption of more effective policies even less likely. That outcome would likely open the door to growing social tension and stresses in Saudi Arabia, a regional lynchpin and a vital source of energy for the global economy.

Crispin Hawes is the director of Eurasia Group's Middle East practice.

By Damien Ma

Though the curious case of blind Chinese dissident Chen Guangcheng has badly embarrassed China's leaders, it has provided them one important benefit -- it has diverted attention from the far more dangerous story of Bo Xilai. Regardless of the outcome in either case, the Communist Party's image has been badly tarnished. For a Chinese government that seems bent on investing in soft power, these last few months have offered clear reminders that soft power cannot be bought. It must be earned.

For a Chinese government that prefers to keep its differences behind closed doors, the Bo Xilai episode is a nightmare, in part because the involvement of the U.S. and British governments in the case has brought an unusual degree of international media scrutiny. (One of Bo's deputies briefly took refuge in the U.S. embassy, and Bo's wife has been implicated in the murder of a British businessman.) China's familiar tools of propaganda have been overwhelmed by frenzied speculation about the case in the Western press and China's social media echo chamber -- yet another reminder that Beijing can no longer afford to ignore Sina Weibo, China's version of Twitter.

The party leadership has dismissed the Bo Xilai saga as a sideshow and Bo himself as an aberration within the country's otherwise upstanding roster of senior officials. But little of China's blogosphere appears to be buying it. Instead, Bo's story signals for many that China remains a corrupt and opaque place, that the unbridled capitalism practiced in China has mainly benefited politically-connected VIPs, and that greed has infected the leadership right to the top.

And though the drama surrounding Chen Guangcheng has given the public something new to speculate about, in some ways, the story reinforces the cynicism that Bo Xilai has exposed. Chen and Bo -- a powerless and once illiterate legal activist and a powerful political scion who long stood above the law -- seem polar opposites. But they have something important in common; both were left without a place to hide when the leadership decided they should be punished.

Few within the country believe that Bo or his wife will have their day in court, reinforcing public fear that average citizens have no real protection within a system manipulated for the benefit of the party. That Chen, like Bo Xilai's deputy, first sought sanctuary in the U.S. embassy underscores a point not lost on the Chinese public: The United States, not China's own government, offers protection of last resort in times of political turmoil.

These stories are engendering a growing trust deficit between the government and the informed public -- the very elites that the party counts as its crucial constituency. A perception of systemic "rot from within" and the lack of legitimacy it implies undermine the regime's monopoly hold on domestic political power.

Despite Premier Wen Jiabao's constant talk of political reform, the last decade of the Hu Jintao/Wen Jiabao administration saw an economy that raced ahead and a political system that changed very little. But to repair this latest damage to its "brand," the party may feel it has to produce some real change. Some within the leadership are already using this opportunity to push for political liberalization. In his closing arguments as premier, an increasingly legacy-conscious Wen Jiabao is making a final pitch for real political reform. But Wen is a lame duck.

Over the course of the next few months, China will introduce a new generation of top leaders. Any political changes they might produce are unlikely to fundamentally recast Chinese politics or to appear soon. But they may soon find that delivering go-go growth is no longer enough. They may find that, particularly in the online public square provided by social media, a growing segment of China's people will expect a new degree of accountability -- and a new kind of change.

Damien Ma is an analyst in Eurasia Group's Asia practice.